Commodity exports tipped to slump

Commodity exports from Australia, the worlds largest shipper of iron ore, coal and wool, are forecast to decline in fiscal 2010 for the first time in six years before rebounding the following year as the global economy recovers.

Sales may drop 17% to $162 billion in the 12 months ending June 30, 2010, the Australian Bureau of Agricultural and Resource Economics (ABARE) said today in a report.

That compares with a revised forecast of $196 billion for this fiscal year.

Lower prices for iron ore, coal and crude oil are forecast by the bureau to drive the decline in Australia's commodity exports, slashing profits at mining companies such as BHP Billiton and Rio Tinto.

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Global economic growth is forecast to fall to 0.6% in 2009, before rising to 3% in 2010, led by China and India, the bureau said.

"We are looking at a couple of years of dismal commodity prices," Ord Minnett analyst Peter Arden said before the report was released. "We may go back into a new phase of more subdued growth down the track."

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"The recovery in world economic performance is expected to begin in late 2009 - early 2010," said the bureau, which expects Australia's exports of commodities to rebound to $166 billion in 2011. "Without a significant improvement in the world economic outlook, a substantial strengthening in world mineral and energy prices appears unlikely in the short term."

The Reuters/Jeffries CRB Index of 19 materials has slumped 55% from a July record as the global recession crimped demand from automakers, appliance-makers and builders, ending six-years of gains. Copper prices have fallen 60% in the past year, zinc 59% and nickel 69%.

BHP and Rio may get 30% less for their iron ore this year under annual contracts after a slump in steel demand. The drop, based on the median estimate of eight analysts surveyed by Bloomberg News, would snap six straight years of gains. Global steel output dropped 24% in January from a year earlier, the World Steel Association said February 20.

Earnings from minerals and energy commodities are estimated at $126 billion, 22% lower than a year earlier because of lower prices for bulk commodities, base metals and aluminum, the bureau said. The value of energy exports may drop 34% to $51 billion, while exports of metals and other minerals are tipped to drop 11% to $75 billion, the bureau said.

The price of WTI crude oil may average $US45 a barrel in 2009, before rising 16% to average $51 a barrel in 2010, it said. It averaged $US100 in 2008. Gold may average $US910 an ounce this year and $US940 an ounce the following year, the bureau said.

To be sure, declines in commodity prices may be offset by a forecast lower Australian dollar. The local currency may average 70 US cents in 2008-09 and 68 cents in 2009-10, it said. The currency has lost 32% in the past year against the US dollar.